Thursday, February 26, 2009

You don't need a credit card. Really.

It's true, right? You need a credit card for modern middle-class life. You can't get along without it. Even an astute friend, one who doesn't follow trends for trends' sake, was caught up in this lie. She posted a Facebook link about how to properly use a credit card. If a credit card had a single redeeming quality, it would be a great link.

But no, there's no reason to have a credit card. Many real-world financial counselors will tell you why:

Say you use your cards responsibly. You pay the whole balance every month, you have no annual fees. You get 2% back and even free tools and perfume every year if you spend enough. You're the shining example of good credit card user, the one who takes advantage of the credit card company and makes money on the bargain. No: you're still a loser according to research - or "a sucker" according to the Boston Globe. You're spending more money thanks to impulse buys. Switch to cash and you can truly come out ahead. More money left over at the end of the month to save, or maybe spend on something more carefully considered.

There are three more common objections, to which I found some answers:

Q: "But not everyone takes cash!"
A: When necessary, use a debit card. You can use them online or anywhere credit cards are accepted. Still use cash when you can, like at the restaurant, or your bill will be magically larger when you're done ordering.

Q: "I need to build my credit!"
A: "Debt is dumb" says Dave Ramsey - never borrow money. OK, just for a house you probably can't buy it any other way. But always buy a house with a large down payment and just a 15-year loan (if you can't, face the fact that you probably can't afford the house). With a good down payment your credit matters a lot less. Is it worth spending years maintaining just the right amount of debt, shining up your credit rating but losing money (see above), for a slightly lower interest rate?

Q: "But what about emergencies?"
A: Plan for them. Build an emergency fund. Save 3-6 months income in a savings or money-market account. Buy insurance (home, car, health, long-term disability, life, liability) as needed. If you're already in a financial emergency, there's other advice and encouragement, but for the rest of us: Cut up your cards, and start building your emergency fund today.

edited 2/27/09 for tone & wording.

Saturday, February 21, 2009

Prison population reduction

One percent of adult Americans are in jail or prison. The problem is worse in Michigan, which spends nearly two billion a year on the 11th-highest per-capita prison population. Lots of people are upset, but misconceptions of the problem will get in the way of fixing it, says John Pfaff. Read his Five Myths About Prison Growth, which concludes:

We need to stop admitting many minor offenders, even if they're serving only short sentences. We need to focus less on high-profile drug statutes and more on the ways small-fry drug convictions cause later crimes to result in longer sentences. Once we start admitting fewer people to prison, we should shift money from prisons to police. If this seems like tinkering, rather than a sweeping fix, that's because it is. See Myth No. 4: Reformers shouldn't waste their breath trying to turn us into Europe.

Governor Granholm wants to cut the prison population as a key part of balancing Michigan's budget.

The truth hurts

Matthew DeBord says that GM is finally painting an honest picture of its future. Key to their restructuring is a realignment of their brands: GM knows it must leave its tiered-branding strategy ("When you outgrew your Chevy, you graduated to Pontiac. Then Olds. Then Buick. Finally, you arrived at the glistening pinnacle, Cadillac.").

[W]hen forced to tell the truth about its destiny, GM doesn't see itself any longer as the postwar colossus that delivered a car for "every purse and purpose" but, instead, a leaner outfit with, for all practical purposes, two major brands: Chevy for volume sales and trucks, and Cadillac for luxury rides. (It's worth noting that Ford, which has declined bailout funds so far, is also saddled with redundant brands and may be following GM down this road in the future.)

Savvy observers will recognize that this is how the domestic carmakers' Japanese rivals do business. Toyota is ... Toyota and Lexus. Honda is ... Honda and Acura. (Toyota also has its Scion youth brand, but the vehicles it sells actually mirror many of the cars GM badges as Chevys.) The emergence of a North American vehicle monoculture, with Detroit's output more closely resembling that of the Asian-American transplants, signals a much more practical, less emotional future for U.S. drivers.

He also says GM won't be able to pay back its debts until well after 2012, when it will be a markedly different company. It's time for everyone in Michigan to realize the old monolith isn't coming back.